Early education provider G8 Education (ASX: GEM) has signed a conditional agreement to sell 31 centres to TAK Operations, part of the private national childcare provider Genius Education Group. What’s more, G8 will pay $26.5 million to Genius, comprising transaction costs and adjustments, with the funds to be allocated across its 31 centres.
The 31 underperforming centres in various Aussie states collectively produce a full-year Statutory EBIT loss of circa $3 million.
G8 Chief Executive Officer and Managing Director, Pejman Okhovat, said, “As part of G8’s commitment to optimising our network, we continuously review our centres to determine which are meeting our high quality and performance standards, which can be improved and which centres would be better under different ownership. This agreement represents a significant milestone in our portfolio optimisation program and will leave us with a stronger network overall.”
Among the for-profit early childcare operators, G8 Education is one of the largest ones listed on the ASX, with over 400 centres operating across Australia, charging parents an average daily fee of $145.
The Company undertook a price hike as the Australian government increased childcare subsidies. G8 also struggled with workforce shortages. In FY23, it had quite a few centres with booking “caps” because there wasn’t enough staff to care for the kids, thus negatively impacting its occupancy.
Its spot occupancy for the week ending October 22, 2023, showed a decline, standing at 75.4%, 1.4% below the same week in 2022 and 2.2% below the same week in 2019.
In FY24, the Company’s aim is to develop a pipeline of qualifying educators and teachers, or as G8 calls it, “growing our own”. It wants to have a team retention rate of over 80%, up from the current 70.2%. For that, it is launching initiatives like Teach@G8 and building bench strength, with over 1300 team members on Study Pathways and Bachelor Scholarships. It also wants to increase its occupancy rate from 67.4% to over 80% while washing its hands off underperforming segments.
The Genius transaction remains subject to various conditions like landlord consent, transfer of the service approval (i.e. licence to operate) and the completion of specific bundles of centres. Obtaining landlord consent to the assignment of each lease from multiple landlords is not guaranteed, and there remains uncertainty regarding the completion of all 31 centres proposed to be divested.
Okhovat added, “A key consideration for G8 was a commitment from Genius Education Group to provide opportunities to our people who will transfer to the new owners. While there is some way to go in the process, we have every confidence that Genius Education Group will provide the ongoing high level of service that the children, families and our team at these centres expect and deserve.”
G8 expects this divestment to be completed by mid to late December 2023 or early 2024, and it may occur in multiple tranches depending on when conditions are met. The sale of these centres is in line with G8’s strategy to review its portfolio.
As per the Company, the divestment will have no impact on trading in CY23 given settlement is no earlier than mid-December.
Alinda is a Business Reporter for The Sentiment
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